Nomura Securities on U.S. Media: Running in Place - The Shares They Are a Shiftin’
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Rating Summary:
5 Buy, 6 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 21 | Down: 43 | New: 13
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Nomura Securities on U.S. Media: Running in Place - The Shares They Are a Shiftin’
Nomura analyst, Michael Nathanson, said, "In 2011, according to the Digital Entertainment Group, the home entertainment industry trade group, U.S. consumer spending on home entertainment products fell by ONLY -2.1%—a nice improvement from the -5% decline in 2010 and a sign that consumer spending may be close to turning positive after seven consecutive years of decline. Over the seven year decline in consumer spending, there has been a 1000+ basis points mix shift towards lower margin home entertainment rental products like Redbox (Nasdaq: CSTR) and Netflix (Nasdaq: NFLX)."
"Over the past year, the home entertainment industry has continued to fight back the trend with innovations such as a premium Video On Demand window just after the theatrical run ends, early electronic sellthrough ahead of the physical sell-through dates, later rental windows from 56 to 28 days, and the continued promotion of UltraViolet. These moves are helping slowly turn the tide of the corrosive rental market...That said, our analysis of the DEG numbers, unfortunately, paints a picture of a world that is still in structural decline. A major contributor to home entertainment industry growth in 2011 was “subscription streaming” revenues from the likes of Netflix and Hulu which, we think, increased by almost 500% as Netflix created, with much negative fanfare, a stand-alone streaming subscription model."
"If we extract the streaming revenues from the official DEG numbers, 2011 home entertainment revenues fall from -2.1% to -6.6%. For the all-important fourth quarter, U.S. home entertainment revenues fell by a similar amount. As such, there is little evidence that the emergence of higher margin Electronic and Blu-ray sell through products has stemmed the drop in the dollar value per home video transaction."
"We have revised our U.S. home entertainment forecast to range from -4% to -6% over the next three years. Of the companies we cover, home entertainment revenue exposure ranges from low double digits at Time Warner to mid to high single digits at Disney (NYSE: DIS), Viacom (NYSE: VIA)(NYSE: VIA-B) and News Corp. (Nasdaq: NWSA) As we learned the hard way with both DIS and NWS in FY2011, we continue to believe investors should be cautious in modeling future growth for studio’s film divisions – especially against strong content cycles. We worry that will be the case at Time Warner (NYSE: TWX) in 2012."
"On the Surface, the Home Entertainment Industry Looks Better: While we doubt anyone expects a studio’s home entertainment division to grow anytime soon, revenues still represent anywhere from 6% to 12% of overall revenue of the media conglomerates that we cover. Note that Time Warner has the greatest home video exposure with 12%, followed by News Corp (8%), Viacom (7% organically, adjusting for the 3rd party revenue from CBS (NYSE: CBS), Marvel and DreamWorks Animation (NYSE: DWA) distribution agreements) and Disney (6%)."
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Nomura analyst, Michael Nathanson, said, "In 2011, according to the Digital Entertainment Group, the home entertainment industry trade group, U.S. consumer spending on home entertainment products fell by ONLY -2.1%—a nice improvement from the -5% decline in 2010 and a sign that consumer spending may be close to turning positive after seven consecutive years of decline. Over the seven year decline in consumer spending, there has been a 1000+ basis points mix shift towards lower margin home entertainment rental products like Redbox (Nasdaq: CSTR) and Netflix (Nasdaq: NFLX)."
"Over the past year, the home entertainment industry has continued to fight back the trend with innovations such as a premium Video On Demand window just after the theatrical run ends, early electronic sellthrough ahead of the physical sell-through dates, later rental windows from 56 to 28 days, and the continued promotion of UltraViolet. These moves are helping slowly turn the tide of the corrosive rental market...That said, our analysis of the DEG numbers, unfortunately, paints a picture of a world that is still in structural decline. A major contributor to home entertainment industry growth in 2011 was “subscription streaming” revenues from the likes of Netflix and Hulu which, we think, increased by almost 500% as Netflix created, with much negative fanfare, a stand-alone streaming subscription model."
"If we extract the streaming revenues from the official DEG numbers, 2011 home entertainment revenues fall from -2.1% to -6.6%. For the all-important fourth quarter, U.S. home entertainment revenues fell by a similar amount. As such, there is little evidence that the emergence of higher margin Electronic and Blu-ray sell through products has stemmed the drop in the dollar value per home video transaction."
"We have revised our U.S. home entertainment forecast to range from -4% to -6% over the next three years. Of the companies we cover, home entertainment revenue exposure ranges from low double digits at Time Warner to mid to high single digits at Disney (NYSE: DIS), Viacom (NYSE: VIA)(NYSE: VIA-B) and News Corp. (Nasdaq: NWSA) As we learned the hard way with both DIS and NWS in FY2011, we continue to believe investors should be cautious in modeling future growth for studio’s film divisions – especially against strong content cycles. We worry that will be the case at Time Warner (NYSE: TWX) in 2012."
"On the Surface, the Home Entertainment Industry Looks Better: While we doubt anyone expects a studio’s home entertainment division to grow anytime soon, revenues still represent anywhere from 6% to 12% of overall revenue of the media conglomerates that we cover. Note that Time Warner has the greatest home video exposure with 12%, followed by News Corp (8%), Viacom (7% organically, adjusting for the 3rd party revenue from CBS (NYSE: CBS), Marvel and DreamWorks Animation (NYSE: DWA) distribution agreements) and Disney (6%)."
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